Lessons for Child Welfare From the Tales of Wells Fargo

By now most readers are familiar with the scandal involving the world’s largest bank, Wells Fargo. Under enormous pressure from management, with their own jobs and livelihoods on the line, thousands of bank employees opened accounts in the names of customers without those customers’ knowledge — so the bank could rake in fees on those accounts.

Top management rushed to scapegoat those low-level employees, firing thousands of them. But Sen. Elizabeth Warren, D-Massachusetts, among others, understood that the Wells Fargo fish rots from the head.

So does a business ethics consultant named Dov Seidman. Interviewed on NPR’s “Weekend Edition,” Seidman was asked: “Do you really need to create or strengthen a culture or just tell your employees: ‘Don’t cheat the customer’?”

“You can tell the employees ‘Don’t cheat the customer,’” Seidman replied. “But … you’re paying them for selling more … You could tell somebody, ‘Be ethical, do the right thing.’ But then you pay them for how much [you sell].”

In other words, financial incentives matter.

They matter in child welfare, too.

Most of the discussion of financial incentives in child welfare deals with government incentives – the fact that states can tap into a huge open-ended federal entitlement to hold children in foster care, but there is nothing comparable for safe, proven alternatives. (And as I have argued here before, the so-called Family First Act would not really change that.)

These federal financial incentives are a serious problem – but they’re not likely to change soon. Meanwhile, there are other bad financial incentives that may easier to fix; at least in theory, since states can fix these incentives on their own.

Much of the care for children in group homes and institutions is not provided directly by governments. It’s subcontracted to private agencies. In some states, these agencies also oversee family foster homes.

Typically, these agencies are paid for each day they hold a child in care. In other words, to paraphrase Seidman: You pay them for how many kids you have and how long you keep them.

Of course the people who run child welfare agencies insist they’re nothing like a bunch of greedy bankers. After all, with some frightening exceptions, most of the agencies are nonprofits.

In one sense they’re right. Leaders of private child welfare agencies do not gather in conference rooms and rub their hands with glee, like Montgomery Burns on “The Simpsons,” at the prospect of more children coming their way.

But rationalization is powerful. Agencies convince themselves that all those children really, truly needed to be taken away and have to stay in foster care for a long, long time.

And the will to survive can induce in nonprofits a kind of greed that is as corrosive of common decency as the worst corporate behavior.

I saw this first-hand long ago when I worked in the original nonprofit sector of journalism, public broadcasting. Twice during early morning “pledge breaks,” the person seeking money told little kids to go get their parents so she could tell them an important message: If the station didn’t get enough money, she said, they might have to take away “Sesame Street.”

But the role of financial incentives can be seen most clearly when they change.

By 1997, Illinois had 50,000 children trapped in foster care on any given day – proportionately the highest rate in the nation. Then the state changed the financial incentives for private agencies.

Lo and behold: The “intractable” became tractable, the “dysfunctional” became functional, and by 2004 the number of children in foster care was under 20,000. By 2014, it was about 17,000.

Some of the same people who insist financial incentives have no effect on decisions to keep children in foster care are quick to spread scare stories about how changing the incentives supposedly would prompt those agencies to send children home too soon. But Illinois operates under a longstanding consent decree, with independent monitors examining the entire system. Those monitors found that after the incentives changed and the foster-care population plummeted, child safety improved.

Illinois still has very serious problems – particularly when it comes to what happens to the children they take into substitute care. But the state places far fewer children at risk of harm, in part by using financial incentives to reduce foster care.

Other states could learn a lot from Illinois — and from the tales of Wells Fargo.

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